Bertelsmann Agrees To Pay One More Time To Finally Settle All Of Napster's Mistargeted Lawsuits

from the bad-precedents dept

It never made sense that the various record labels and music publishers sued record label Bertelsmann for the Napster affair. Yes, it's true that Bertelsmann was the only major record label to view Napster as an opportunity rather than a threat. And it's true that Bertelsmann invested quite a bit of money into Napster. But, the other record labels' misguided complaint was with Napster -- not with Bertelsmann. The problem was that after winning the original Napster lawsuit, the other record labels realized that Napster had no money. So they sued Bertelsmann instead, for being the only record label with forward-thinking management to invest in Napster. However, it makes no sense to put any kind of liability on investors in a company. Otherwise, it would make life quite difficult for any investor today -- who could then be sued for the actions of the company he or she invested in. It would greatly increase the liability for retail investors as well as institutional investors. It's for that reason that it would have been nice to see Bertelsmann fight this case and win it.

Unfortunately, before the case had a chance to get anywhere, Universal Music (who was the first to sue Bertelsmann) bought Bertelsmann. Then, rather than sue itself, the company quickly settled that portion of the lawsuit and proceeded to settle the other portions as well, with the final part of the case finally settling late last week. Bertelsmann eventually had to pay out approximately $300 million in all of these "settlements," which is a real shame since all the company did was invest in a service that its executives (who were soon fired) realized could have revolutionized the music business. While these are all settlements, meaning that there's no court precedent, this could still encourage companies to sue investors in companies rather than the companies themselves. Venture capitalists and private equity firms might want to take note.

Enron?

do you ever even run these thoughts by anyone with a little bit of legal knowledge.. or are you guys like the 1000 monkeys pounding on a keyboard trying to create something...

you have different levels of investors (active/passive/etc...) depending on the level of involvement. i'm pretty sure that bertelsmann's mgmt was more of a very active investor, meaning they played a role in the direction of the operation (even though the operation was pretty washed up...)

furthermore, the mgmt would have been sophisticated enough to do their own due diligence, to understand the risks of what napster was doing at that time...

these and other issues were what led to bertelsmann being a target to be sued...

Re:

do you ever even run these thoughts by anyone with a little bit of legal knowledge.. or are you guys like the 1000 monkeys pounding on a keyboard trying to create something...

Sam, it's so nice that you stop by and insult us, when you almost always misread what we write or get the basic facts wrong. It's nice of you to imply we don't know what we're talking about when the facts tend to back us up -- and you never seem able to grasp the facts.

. i'm pretty sure that bertelsmann's mgmt was more of a very active investor, meaning they played a role in the direction of the operation

Venture capitalists are usually pretty active investors themselves -- but again, the legal liability lies with those who are actually the officers of the company. Suing the investors is a very dangerous strategy that opens up all sorts of problems.